MNI DATA IMPACT: UK GDP Contracts Near A Fifth In Q2

The UK suffered a record decline in output over the second quarter, although the decline was slightly less severe than initially reported. Even after the revisions, the UK economy was hit much harder than both the U.S. and the eurozone through April and June, the Q2 National Accounts released Wednesday by the Office for National Statistics showed.

GDP plunged by a record 19.8% in Q2, a slightly more-shallow fall than the initially-reported 20.4% decline. Despite the upward revision, the UK suffered a steeper fall than many other developed economies. The eurozone contracted by 11.8% in Q2, while US output fell by 9.1% (both upwardly revised from initial estimates).

Output fell by 2.5% in Q1, worse than the initially-reported 2.2% decline. The economy contracted by 21.8% between the end of 2019 and the end of 2020, according to a national statistician.

The savings ratio soared to a record-high 29.1% (series dating back to 1987), from 9.6% in Q1. Many economists question whether the spike represents forced savings, with consumers unable to spend freely during months of lockdown, or whether households may remain cautious over the longer term under the current uncertainty.

CONSUMERS NOT SPENDING

Consumer spending plunged by 23.6%, worse than the initially-reported 23.1% fall, while an upward revision to services output accounted for much of the upgrade to Q2 GDP. Services declined by 19.2%, modestly better than the originally-reported 19.9% fall, largely on better accounting for the decline in education services.

Production fell by 16.3% in Q2, better than the initially-reported 16.9% fall, while manufacturing declined by 21.1%, compared to the previously-reported 20.2% decline. Construction output was revised lower to -35.7% from -35.0% previously.

The decline in business investment was less dramatic than originally reported, suffering a 26.5% quarterly decline, compared to the initially-reported 31.4% fall. A number of Bank of England officials have recently spoken of concerns that business investment could remain weak over the medium term.

Government spending fell by 14.8%, worse than the originally-reported 14.0% decline. The economy was weaker than previously thought ahead of the Covid-induced economic shock. GDP growth over 2019 was revised downward to 1.3% from the previously reported 1.5% gain.

The headline current account deficit narrowed to GBP2.764 billion from GBP20.814 billion in Q1, taking the shortfall to 0.6% of GDP, the lowest Q2 2011. Excluding non-monetary gold and precious metals, the deficit narrowed by GBP7.5 billion to £12.1 billion, or 2.5% of GDP, the lowest since Q4 2011.